On May 25, 2023, the IRS issued its third and most stern warning yet, regarding the Employee Retention Tax Credit, and related scams that have popped up as a result. In this most recent announcement, the IRS has cautioned businesses and tax-exempt organizations about the rising threat of misleading employee retention scams. These scams can potentially lead to improper filing of claims, putting your organization at risk of legal trouble. In this blog post, we will explore the warning signs of such scams and offer simple steps to safeguard your business.
Understanding the Warning Signs
Employee retention scams have become increasingly prevalent in recent times, exploiting the confusion and chaos caused by the COVID-19 pandemic. These scams typically target employers by promising financial relief through tax credits meant for employee retention under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. However, the scammers mislead businesses into filing false claims, which can result in severe penalties and legal consequences.
To protect your organization, it is crucial to be aware of the warning signs associated with these scams. The IRS has identified some key indicators that can help you identify potential fraudulent schemes:
- Unsolicited offers: Be wary of unsolicited calls, emails, or social media messages offering assistance or making promises of large tax credits. Legitimate organizations do not typically initiate contact in this manner.
- High-pressure tactics: Scammers often use aggressive tactics to create a sense of urgency and pressurize businesses into making hasty decisions. They may demand immediate payment or threaten legal action if you fail to comply.
- Requests for sensitive information: Never share confidential information, such as your EIN (Employer Identification Number) or bank account details, with unknown or unverified individuals or organizations.
- Lack of proper documentation: Legitimate tax advisors or professionals will always provide clear and concise documentation to support their claims. If a party fails to provide relevant paperwork or refuses to answer your queries, exercise caution.
Preventing Scams: Simple Steps for Businesses
To avoid falling victim to misleading employee retention scams, the IRS recommends following these essential steps:
- Educate yourself and your employees: Stay informed about the latest tax laws, credits, and relief measures. Familiarize yourself with legitimate sources of information, such as the official IRS website, and encourage your staff to do the same.
- Validate the source: Before sharing any information or engaging in financial transactions, verify the legitimacy of the individual or organization. Check their credentials, look for online reviews or testimonials, and seek recommendations from trusted sources.
- Report suspicious activity: If you encounter any suspicious offers or receive communication that seems dubious, report it immediately to the IRS. This will help the authorities investigate and prevent further scams.
- Consult a trusted tax advisor: Engaging a qualified tax professional can provide valuable guidance and ensure compliance with tax regulations. Seek recommendations from trusted sources and choose an advisor with a proven track record.
Conclusion
Protecting your business from misleading employee retention scams is crucial for maintaining financial stability and avoiding legal troubles. By being vigilant, staying informed, and following the IRS guidelines, you can safeguard your organization from falling victim to these fraudulent schemes. Remember, when it comes to sensitive tax matters, it is always better to err on the side of caution. Stay informed, stay proactive, and protect your business from potential scams.
You can read the full IRS announcement at this webpage: https://www.irs.gov/newsroom/irs-alerts-businesses-tax-exempt-groups-of-warning-signs-for-misleading-employee-retention-scams-simple-steps-can-avoid-improperly-filing-claims
